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TMI Blog1964 (4) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... s illegal, having not been addressed to or served on the principal officer of the assessee-company? (3) Whether, in the circumstances of the case, there are materials to justify the adoption of 15 per cent. as the basis for ascertaining the gross profit for the assessment years 1948-49 and 1949-50? The first two of the questions set out above arise with respect to the proceedings initiated for the year 1948-49 and the third question is common to both that year and the one following. Before proceeding to answer these questions, we have to set out a few introductory facts. On August 8, 1944, one Ramamurti and a close relation of his, Subrahmanyan, formed themselves into a partnership for trading in electrical goods at Madras. This business was successful both from the point of view of its volume and of the profit earned, the assessed income for the year 1947-48 being ₹ 60,237. On April 4, 1947, the two partners put an end to that firm and formed a private limited company under the name of General Commercial Corporation Limited, which is the assessee in the present case. The other members of the company were a few close relations of these two partners. Its main obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness is started during the middle of a financial year and the assessee closes the account at any time before the beginning of the next following financial year. Strangely enough, the Income-tax Officer accepted the assessee's return for the year 1949-50 in toto and he declared that the assessee was not assessable for that year as well. The Commissioner of Income-tax, by virtue of the powers vested in him under section 33B of the Act, set aside the order of assessment and directed the Income-tax Officer to make a fresh assessment for the year 1949-50. In so doing, he found, after looking into the memorandum and articles of association of the assessee-company, that there was a previous year for the assessment year 1948-49, the period from April 7, 1947, to March 31, 1948. He also found that there were serious irregularities in the accounts. For example, a sum of ₹ 97,567 was claimed as a deduction in respect of a payment made to the firm of General Commercial Distributors. That firm consisted of two partners, namely, Ramamurti and Subrahmanyam, who were the principal shareholders of the assessee-company. It was conceded by one of the partners before the Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1948-49, it was only a wrong conclusion reached by him and the mere fact that the Commissioner of Income-tax, at a later time, found that there was a previous year to the assessment year would not amount to an information within the meaning of section 34(1)(b) of the Act so as to justify the initiation of proceedings under that section. As we pointed out earlier, when the Income-tax Officer originally issued notice under section 22(2) of the Act, the assessee stated that there was no previous accounting year for 1948-49, inasmuch as it had commenced its business on April 7, 1947, and closed its accounts on May 7, 1948. We have also pointed out that it was open to the assessee to choose his own period of account: the only condition is that such period should not exceed a year. If, for example, the assessee were to have his accounts from April 7, 1947, to April 6, 1948, there will be no previous year for 1948-49 but there would be one for 1949-50. The remaining period, namely, April 7, 1948, to May 7, 1948, will, in that case, relate to the assessment year 1950-51. Therefore, the question whether there was a previous year to 1948-49 will depend on the facts disclosed to the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of seven years, reserving to himself a power to revoke the same at the end of that period. After the trust deed was executed, the children were separately assessed in respect of their shares of income from the trust property; the assessee was assessed in respect of his other income. Even after the seven-year period was over, the assessee's income was assessed as before, with respect to his properties other than the trust properties. But when the trustee submitted his return, as usual, in respect of the income from the trust properties, the Income-tax Officer dealing with that matter found that as the trust had become revocable, the income from the properties, till then set apart for trust, had to be assessed in the hands of the assessee himself and not as the income of the beneficiaries. This was communicated to the Income-tax Officer in charge of the separate assessment of the assessee, the assessment of which had already been completed. The latter officer then initiated proceedings under section 34(1)(b) of the Act. It was held that proceedings under that provision were not properly initiated inasmuch as the information that the trust had become revocable was always avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o years. To that extent it can be said that the Income- tax Officer was in possession of material showing that the assessment should be distributed between two years. That, however, is not the same thing as saying that assessment should be made for the years 1948-49 and 1949-50. As we pointed out earlier, it may be that if the assessee had adopted the period from April 7, 1947, to April 6, 1948, as the year of account, the two assessment years during which the company did business would be 1949-50 and 1950-51. There was, therefore, no material before the first Income-tax Officer which would have clearly shown that part of the period during which the company earned profits fell within the year previous to the year of assessment 1948-49. Information in that regard came to the Income-tax Officer only when the Commissioner of Income-tax was able to find it out. There was, therefore, sufficient jurisdiction in the Income-tax Officer to initiate proceedings under section 34 of the Act. Our answer to the first question will be in the negative and against the assessee. Question No. 2.--Mr. Krishnamurthi Ayyar on behalf of the assessee contended that the assessee being a company, notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the law be addressed to the assessee. What section 34 prescribes is that such notice to the assessee-company should be served on its principal officer. Section 63 of the Act provides for the manner of service of notice. That provision enables the effectuation of service on the principal officer of a company. It is argued that Subrahmanyam was only the secretary of the managing director and service of notice upon him will not be equivalent to service on the managing director. Reliance was placed, in this connection, upon two decisions of the Kerala High Court in Commissioner of Income-tax v. Thayaballi Mulla Jeevaji Kapasi [1963] 47 I.T.R. 184 and M.O. Thomas v. Commissioner of Income-tax [1963] 47 I.T.R. 775. In the former case the service of the notice was made on the son of an assessee. It was held that it was not proper service for the purpose of section 34 of the Act. In the latter case there was service by affixture but there was no affidavit from the serving officer and it was held that the service was improper. Neither could be proper service. In the present case, there is no such infirmity. Service must be deemed to have been effected on the principal officer, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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